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Mon, 30 Jun 2014 13:00:04 +0200Mon, 30 Jun 2014 13:00:04 +0200Monetary policy and balance sheet adjustmenthttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/34325
In the wake of the Global Financial Crisis that started in 2007, policymakers were forced to respond quickly and forcefully to a recession caused not by short-term factors, but rather by an over-accumulation of debt by sovereigns, banks, and households: a so-called “balance sheet recession.” Though the nature of the crisis was understood relatively early on, policy prescriptions for how to deal with its consequences have continued to diverge. This paper gives a short overview of the prescriptions, the remaining challenges and key lessons for monetary policy.Otmar Issingworkingpaperhttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/34325Mon, 30 Jun 2014 13:00:04 +0200Forward guidance: a new challenge for central bankshttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/34329
n a contribution prepared for the Athens Symposium on “Banking Union, Monetary Policy and Economic Growth”, Otmar Issing describes forward guidance by central banks as the culmination of the idea of guiding expectations by pure communication. In practice, he argues, forward guidance has proved a misguided idea. What is presented as state of the art monetary policy is an example of pretence of knowledge. Forward guidance tries to give the impression of a kind of rule-based monetary policy. De facto, however, it is an overambitious discretionary approach which, to be successful, would need much more (or rather better) information than is currently available. In Issing's view, communication must be clear and honest about the limits of monetary policy in a world of uncertainty.Otmar Issingworkingpaperhttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/34329Mon, 30 Jun 2014 12:49:19 +0200Transcript of a hearing before members of the House of Lords (UK) in Frankfurt on genuine economic and monetary union and its implication for the UKhttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/33638
On November 8, 2013, several members of the British House of Lords’ Subcommittee A conducted a hearing at the ECB in Frankfurt, Germany, on “Genuine Economic and Monetary Union and its Implications for the UK”. Professors Otmar Issing and Jan Pieter Krahnen were called as expert witnesses.
The testimony began with a general discussion on the elements considered necessary for a functioning internal market. Do economic union and monetary union require a fiscal union or even a political union, beyond the elements of the banking union currently being prepared? In this context, also the critique of the German current account surplus and the international expectations that Germany stimulate internal demand to support growth in crisis countries, were discussed.
With regard to the monetary union, the members of the subcommittee asked for an assessment of how European nations and the banking industry would have fared in the banking crisis that followed the Lehman collapse, had there not been a common currency. Given the important role that the ECB has played in the course of the crisis management, the members further asked for an evaluation of the OMT-program of the ECB and also if the monetary union is in need of common debt instruments, in order to provide the ECB with the possibility of buying EU liabilities, comparable to the Fed buying US Treasury bonds. Finally, the dual role of the ECB for monetary policy and banking supervision was an issue touched on by several questions.Otmar Issing; Jan Pieter Krahnenworkingpaperhttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/33638Tue, 03 Jun 2014 16:47:17 +0200A new paradigm for monetary policy?http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/32507
Keynote speech to Conference “Twenty Years of Transition – Experiences and Challenges”. Central Bank of Slovakia. Bratislava, 3 May 2013Otmar Issingworkingpaperhttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/32507Tue, 17 Dec 2013 09:23:11 +0100Challenges for monetary policyhttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/32279
The financial crisis which started in 2007 has caused a tremendous challenge for monetary policy. The simple concept of inflation targeting has lost its position as state of the art. There is a debate on whether the mandate of a central bank should not be widened. And, indeed, monetary policy has been very accommodative in the last couple of years and central banks have modified their communication strategies by introducing forward guidance as a new policy tool. This paper addresses the consequences of these developments for the credibility, the reputation and the independence of central banks. It also comments on the recent debate among economists concerning the question whether the ECB's OMT program is compatible with its mandate.Otmar Issingworkingpaperhttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/32279Thu, 14 Nov 2013 14:45:05 +0100Monetary theory and monetary policy : reflections on the development over the last 150 years : [Version 8 Dezember 2012]http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/27875
In this paper, we provide some reflections on the development of monetary theory and monetary policy over the last 150 years. Rather than presenting an encompassing overview, which would be overambitious, we simply concentrate on a few selected aspects that we view as milestones in the development of this subject. We also try to illustrate some of the interactions with the political and financial system, academic discussion and the views and actions of central banks.Otmar Issing; Volker Wielandworkingpaperhttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/27875Tue, 05 Feb 2013 10:49:24 +0100Monetary theory and monetary policy : reflections on the development over the last 150 yearshttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/28635
In this paper, we provide some reflections on the development of monetary theory and monetary policy over the last 150 years. Rather than presenting an encompassing overview, which would be overambitious, we simply concentrate on a few selected aspects that we view as milestones in the development of this subject. We also try to illustrate some of the interactions with the political and financial system, academic discussion and the views and actions of central banks.Otmar Issing; Volker Wielandworkingpaperhttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/28635Mon, 04 Feb 2013 13:53:23 +0100Central banks – paradise losthttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/25229
Otmar Issingworkingpaperhttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/25229Mon, 18 Jun 2012 14:00:20 +0200Recommendations by the Issing Commission : memo for the G-20 November 2011 summit in Canneshttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/24087
Otmar Issing; Jan Pieter Krahnen; Klaus Peter Regling; William R. Whiteworkingpaperhttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/24087Tue, 03 Apr 2012 16:40:15 +0200Lessons for monetary policy: what should the consensus be?http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/21843
This paper outlines important lessons for monetary policy. In particular, the role of inflation targeting, which was much acclaimed prior to the financial crisis and since then has not lost much of its endorsement, is critically reviewed. Ignoring the relation between monetary policy and asset prices, as is the case in this monetary policy approach, can lead to financial instability. In contrast, giving, inter alia, monetary factors a role in central banks’ policy decisions, as is done in the ECB’s encompassing approach, helps prevent these potentially harmful side effects and thus allows for fostering financial stability. Finally, this paper makes a case against increasing the central banks’ inflation target. JEL Classification: E44, E52, E58 Keywords: Inflation Targeting, Asset Prices, Financial Stability, ECBOtmar Issingworkingpaperhttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/21843Thu, 16 Jun 2011 11:32:04 +0200Criteria for a workable approach towards bank levies and bank restructuring : memo for the june 2010 meeting of the G-20 in Torontohttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/7911
SUMMARY RECOMMENDATIONS 1. One of the major lessons from the current financial crisis refers to the systemic dimension of financial risk which had been almost completely neglected by bankers and supervisors in the pre-2007 years. 2. Accordingly, the most needed change in financial regulation, in order to avoid a repetition of such a crisis in the future, consists of influencing individual bank behaviour such that systemic risk is decreased. This objective is new and distinct from what Basle II was intended to achieve. 3. It is important, therefore, to evaluate proposed new regulatory instruments on the ground of whether or not they contribute to a reduction, or containment of systemic risk. We see two new regulatory measures of paramount importance: the introduction of a Systemic Risk Charge (SRC), and the implementation of a transparent bank resolution regime. Both measures complement each other, thus both have to be realized to be effective. 4. We propose a Systemic Risk Charge (SRC), a levy capturing the contribution of any individual bank to the overall systemic risk which is distinct from the institution’s own default risk. The SRC is set up such that the more systemic risk a bank contributes, the higher is the cost it has to bear. Therefore, the SRC serves to internalize the cost of systemic risk which, up to now, was borne by the taxpayer. 5. Major details of our SRC refer to the use of debt that may be converted into equity when systemic risk threatens the stability of the banking system. Also, the SRC raises some revenues for government. 6. The SRC has to be compared to several bank levies currently debated. The Financial Transaction Tax (FTT) does not directly address systemic risk and is therefore inferior to a SRC. Nevertheless, a FTT may offer the opportunity to subsidize on-exchange trading at the expense of off-exchange (over-the-counter, OTC) transactions, thereby enhancing financial market stability. The Financial Activity Tax (FAT) is similar to a VAT on financial services. It is the least adequate instrument among all instruments discussed above to limit systemic risk. 7. Bank resolution regime: No instrument to contain systemic risk can be effective unless the restructuring of bank debt, and the ensuing loss given default to creditors, is a real possibility. As the crisis has taught, bank restructuring is very difficult in light of contagion risk between major banks. We therefore need a regulatory procedure that allows winding down banks, even large banks, on short notice. Among other things, the procedure will require to distinguish systemically relevant exposures from those that are irrelevant. Only the former will be saved with government money, and it will then be the task of the supervisor to ensure a sufficient amount of nonsystemically relevant debt on the balance sheet of all banks. 8. Further issues discussed in this policy paper and its appendices refer to the necessity of a global level playing field, or the lack thereof, for these new regulatory measures; the convergence of our SRC proposal with what is expected to be long-term outcome of Basle III discussions; as well as the role of global imbalances.Otmar Issing; Jan Pieter Krahnen; Klaus Regling; William Whiteworkingpaperhttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/7911Fri, 20 Aug 2010 09:59:58 +0200Why a common eurozone bond isn’t such a good ideahttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/6850
Otmar Issingworkingpaperhttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/6850Tue, 01 Sep 2009 13:10:13 +0200New financial order : recommendations by the Issing Committee ; preparing G-20 – London, April 2, 2009http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/6282
Content A. EXECUTIVE SUMMARY, INCLUDING MAJOR RECOMMENDATIONS B. COMPLETE REPORT 1. INTRODUCTION 2. RISK MAP 2.1 Why a Risk Map is needed, and for what purpose 2.1.1 Creating a unified data base 2.1.2 Assessing systemic risk 2.1.3 Allowing for coordinated policy action 2.2 Recommendations 3. GLOBAL REGISTER FOR LOANS (CREDIT REGISTER) AND BONDS (SECURITIES REGISTER) 3.1 Objectives of a credit register 3.2 Credit registers in Europe (and beyond) 3.3 Suggestions for a supra-national Credit Register 3.4 Integrating a supra-national Securities Register 3.5 Recommendations 4. HEDGE FUNDS: REGULATION AND SUPERVISION 4.1 What are hedge funds (activities, location, size, regulation)? 4.2 What are the risks posed by hedge funds (systematic risks, interaction with prime brokers)? 4.3 Routes to better regulation (direct, indirect) 4.4 Recommendations 5. RATING AGENCIES: REGULATION AND SUPERVISION 5.1 The role of ratings in bond and structured finance markets, past and present 5.2 Elements of rating integrity (independence, compensation and incentives, transparency) 5.3 Recommendations (registration, transparency, annual report on rating performance) 6. PROCYCLICALITY: PROBLEMS AND POTENTIAL SOLUTIONS 6.1 What is meant by “procyclicality” and why is it a problem? 6.2 The roots of procyclicality and the lessons it suggests for policymakers 6.2.1 Underpinnings of the phenomenon 6.2.2 Lessons to be learned 6.3 Characteristics of a macrofinancial stability framework 6.4 Recommendations 7. THE ROLE OF INTERNATIONAL INSTITUTIONS AND FORA, IN PARTICULAR THE IMF, BIS AND FSF 7.1 Legitimacy 7.2 Re-focusing the work 7.3 RecommendationsOtmar Issing; Jörg Asmussen; Jan Pieter Krahnen; Klaus Regling; Jens Weidmann; William Whiteworkingpaperhttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/6282Thu, 16 Apr 2009 15:42:22 +0200New financial order : recommendations by the Issing Committee ; preparing G-20 – Washington, November 15, 2008http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/6281
Content New Financial Architecture (Short Version) 1. Purpose of the paper – causes of the crisis 2. Recommendations 2.1. Incentives 2.2. Transparency 2.3. Regulation and Supervision 2.4. International Institutions 3. Concluding remarks Appendix (Full text) A 1. Causes of the crisis A 2. Improving the Framework A 2.1. Incentives A 2.2. Transparency A 2.3. Regulation and Supervision A 2.4. International Institutions A 3. Concluding remarksOtmar Issing; Jörg Asmussen; Jan Pieter Krahnen; Klaus Regling; Jens Weidmann; William Whiteworkingpaperhttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/6281Thu, 16 Apr 2009 15:37:21 +0200The Euro - a currency without a statehttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/6197
Otmar Issingworkingpaperhttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/6197Thu, 29 Jan 2009 13:36:46 +0100Opting out of the great inflation: German monetary policy after the break down of Bretton Woodshttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/6183
During the turbulent 1970s and 1980s the Bundesbank established an outstanding reputation in the world of central banking. Germany achieved a high degree of domestic stability and provided safe haven for investors in times of turmoil in the international financial system. Eventually the Bundesbank provided the role model for the European Central Bank. Hence, we examine an episode of lasting importance in European monetary history. The purpose of this paper is to highlight how the Bundesbank monetary policy strategy contributed to this success. We analyze the strategy as it was conceived, communicated and refined by the Bundesbank itself. We propose a theoretical framework (following Söderström, 2005) where monetary targeting is interpreted, first and foremost, as a commitment device. In our setting, a monetary target helps anchoring inflation and inflation expectations. We derive an interest rate rule and show empirically that it approximates the way the Bundesbank conducted monetary policy over the period 1975-1998. We compare the Bundesbank´s monetary policy rule with those of the FED and of the Bank of England. We find that the Bundesbank´s policy reaction function was characterized by strong persistence of policy rates as well as a strong response to deviations of inflation from target and to the activity growth gap. In contrast, the response to the level of the output gap was not significant. In our empirical analysis we use real-time data, as available to policy-makers at the time. JEL Classification: E31, E32, E41, E52, E58Andreas Beyer; Vítor Gaspar; Christina Gerberding; Otmar Issingworkingpaperhttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/6183Thu, 29 Jan 2009 11:36:37 +0100